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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 4Introduction"Animation has always been the heart and soul of the Walt Disney Company and it iswonderful to Bob Iger and the company embrace that heritage by bringing the outstandinganimation talent of the Pixar team back into the fold." - Roy Disney Jr. in 2006As Walt Disney Company’s former longtime senior executive Roy Disney Jr. mentioned,the animation is remarkable in many respects of company’s business plans. The WaltDisney Company is the largest media conglomerate in the world in terms of revenue WaltDisney Productions established itself as a leader in the American animation industry beforediversifying into live-action film production, television, and travel.Disney, perhaps better than any other company on the planet, can perform "3DBranding". The 3D approach realizes that brands grow as people interact with them andcontribute to the story. Walt Disney did this early on with its theme parks. Furthermore, 3Dbranding realizes that every company should make themselves easy to find and easy tobuy. With this respect, Disney established the acquisitions of Marvel Comics and PixarStudios in order to increase its brand reputation, strength and profits as well as reduction ofcosts which are deeply analyzed in the report.The report highlights a brief history of the animation industry as well as the evolution ofcomputer animation. It also attempts to give a short description of the Walt DisneyCompany, Pixar and Marvel Comics. Furthermore the report examines the advantages anddrawbacks of the partnership agreement between Disney and Pixar for producing anddistributing animation films. It describes the rationale behind Disneys acquisition of Pixarand Marvel and the pre-acquisition process in terms of benefits and risks. Finally it tries togive a brief account of the post-acquisition and present situation of the companies.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 51. Context1.1 Industry Analysis1.1.1 Traditional Animated Film MarketTraditional animation, (or classical animation, cel animation, or hand-drawn animation) isan animation technique where each frame is drawn by hand. The technique was thedominant form of animation in cinema, until the advent of computer animation. Thetechniques of an animation process that originally depend on cels in its final stages, butpainted cels are rare today as the computer moves into the animation studio and the outlinedrawings are usually scanned into the computer and filled with digital paint instead ofbeing transferred to cel and then coloured by hand. It is now possible for animators to draw directly into a computer using a graphics tablet ora similar device, where the outline drawings are done in a similar manner as the would beon a paper. The Goofy represented Disney’s first project based on the paperless technologyavailable today. Some of the advantages are the possibility and potential of controlling thesize of the drawings while working on them, drawing directly on a multiplane backgroundand eliminating the need of photographing line tests and scanningThough traditional animation is now commonly done with computers, it is important todifferentiate computer-assisted traditional animation from 3D computer animation, suchas Toy Story and ReBoot. However, often traditional animation and 3D computer animationwill be used together, as in Don Bluths Titan A.E. and Disneys Tarzan and TreasurePlanet. Most anime still use traditional animation today. DreamWorks executive JeffreyKatzenberg coined the term "tradigital animation" to describe films produced by his studiowhich incorporated elements of traditional and computer animation equally, such as Spirit:Stallion of the Cimarron and Sinbad: Legend of the Seven Seas.1.1.2 Computer Animated Film Market The rapid advancement of technology has made computer animation available to themasses and the animation industry is one of the fastest growing industries. The demand foranimated entertainment has expanded with the increase in broadcasting hours by cable andsatellite TV along with the growing popularity of the Internet. In the past, animation serieswere aimed at children aged nine and below. In recent years however, TV stations havebeen producing animation series for teenagers, adults and the whole family. Animationseries like The Simpsons and King of the Hill have been successfully aired on primetimeTV. The major markets include the United States, Canada, Japan, France, Britain andGermany. Licensing operations for T-shirts, caps and other items have also been a majorsource of revenue for animation companies. In Japan, several successful computer gameshave crossed over and have become animated series like Pokemon, Monster Farm, PowerStone and Detective Conan. More broadly speaking, animation is increasingly used in

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 6video games, and movies are also increasingly reliant on animation and computer graphicspecial effects.Another key trend we are witnessing is the outsourcing of animation content to Asia. Thismarket is increasingly being tapped by North American film and television programproducers. The major factor behind this shift of computer animation production to theAsia/Pacific region continues to be the availability of low cost, powerful computeranimation platforms and much lower labour rates in the Asian and Pacific Rim countriescompared to North America and Europe. The bulk of the outsourcing happens for 2Danimation content with some amount of 3D content. The key factors of the computeranimated film market mentioned below: Key Facts● The rapid advancement of computer technology has made computer animation available tothe masses.● The major animaƟon markets include the United States, Canada, Japan, France, Britain, Koreaand Germany.● The emerging animaƟon countries are China and India due to low labour rates animationcontent ıs outsourced here.● The outsourced computer animaƟon producƟon market is increasingly being tapped by NorthAmerican film and television program producers.● The major factors behind outsourcing of animaƟon content to the Asia/Pacific region are theavailability lower labor rates. ● The bulk of the outsourcing happens for 2D animaƟon content with some amount of 3Dcontent.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 71.2 Companies Analysis1.2.1 Disney vs. PixarSince the release of Snow White and the Seven Dwarfs by Disney in 1937, animated filmshave become one of the most universally enjoyed forms of entertainment. Disney has along history of developing, producing, and distributing films such as Beauty and the Beast,Aladdin and The Lion King. The stories and characters of these popular animated featurefilms have become part of our modern mythology, enjoyed generation after generation.Traditionally, these popular animated feature films have been created using the time-consuming and labor-intensive process of two-dimensional, hand-drawn cel animation.The Walt Disney Company, together with its subsidiaries, is a diversified worldwideentertainment company with operations in five business segments: Media Networks, Parksand Resorts, Studio Entertainment, Consumer Products and Interactive Media. Forconvenience, the terms the company is used to refer collectively to the parent company andthe subsidiaries through which our various businesses are actually conducted. Thecompany completed an acquisition of Pixar Animation Studios (2006). The Walt DisneyCompany distributes produced and acquired films (including its film and television library)in the theatrical, home entertainment and television markets. The primary banners for itsfilms are Walt Disney Pictures, Touchstone Pictures, Pixar, Miramax and Dimension. Thecompany’s primary focus is Disney-branded films under the Walt Disney Pictures andPixar banners. Pixar Animation Studios started with John Lasseter and George Lucas. Pixar was initiallya computer graphics division which was of film maker George Lucas as Lucas film limitedand whose core product was the Pixar Image Computer. In 1986, Steve Jobs purchased thecomputer graphics division of Lucas Film Ltd. For $10 million and established it as anindependent company named Pixar co-founded with Dr. Edvin E. Catmull. NowadaysPixar is an Academy Award ®-winning computer animation studio with the technical,creative and production capabilities to create a new generation of animated feature films,merchandise and other related products. Pixars objective is to combine proprietarytechnology and world-class creative talent to develop computer-animated feature filmswith memorable characters and heartwarming stories that appeal to audiences of all ages.1.2.2 Disney-Pixar Partnership Evolution In May 1991, Pixar entered into an agreement with Walt Disney Pictures for thedevelopment and production of up to three computer animated feature films to be marketedand distributed by Disney. It was pursuant to this agreement that Toy Story was developed,produced, and distributed. Also Disney was receiving distribution fees and %87 of thedistribution proceeds. In February 1997, Pixar entered into a new Co-Production Agreement with Disneypursuant to which Pixar, on an exclusive basis, agreed to produce five original computer-

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 8animated feature-length theatrical motion pictures for distribution by Disney. According tothis agreement production costs were co-financed by Pixar and let Disney ownership of%50, distribution rights, co-branding, profit sharing for picture merchandise and ancillaryproducts. The five original Pictures under the Co-Production Agreement were A BugsLife, Monsters, Inc., Finding Nemo, The Incredibles, and Cars. Toy Story 2, the theatricalsequel to Toy Story, was released in November 1999, and is also included in the Co-Production Agreement. Ratatouille was subsequently added to the terms of the Co-Production Agreement in January 2006.On January 24, 2006, Pixar entered into an agreement with The Walt Disney Company tomerge the two companies. The deal was approved by shareholders of both companies andthe merger became effective on May 5, 2006. The Walt Disney Company purchased Pixarthrough an all-stock transaction worth US $7.4 billion. Pixar is now a wholly-ownedsubsidiary of The Walt Disney Company.1.2.3 Marvel EntertainmentMarvel Comics began life as "Timely Publications" in 1939, with comic booksfeaturing Captain America, Namor the Sub-Mariner and an early version of the HumanTorch. Legendary comics writer Stan Lee was hired as an office assistant in 1939. Withintwo years, the 19-year-old Lee was promoted to editor of the Marvel Comics line, a postthat he would keep until 1972.Everything changed in 1961, when Lee and artist Jack Kirby created The Fantastic Four --a new style of superhero comic that focused on the characters internal drama as well astheir heroic adventures. The style was a huge success, and the Lee/Kirby team went on tocreate the Incredible Hulk, Iron Man, the Mighty Thor and the X-Men. The prolific Leeworked with artist Steve Ditkoto create Marvels greatest success story, Spider-Man. StanLees Marvel revolution extended beyond the characters and storylines to the way in whichcomic books engaged the readership and built a sense of community between fans andcreators.Nowadays, Marvels heroes are blockbuster stars on the silver screen, with Spider-Man,Iron Man, the X-Men and the Hulk becoming regular features of the summer movie season.Today Marvel Entertainment, a wholly-owned subsidiary of The Walt Disney Company, isone of the worlds most prominent character-based entertainment companies, built on aproven library of over 8,000 characters featured in a variety of media over seventyyears. Marvel utilizes its character franchises in entertainment, licensing and publishing.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 9Case 1: Disney & Pixar2. Pre-Acquisition 2.1 Rationale for Acquisition2.1.1 Research & DevelopmentDuring its history, Pixar has attracted some of the worlds finest talent in several areas,most technical employees held PhD’s. Pixars technical and creative teams havecollaborated since 1986 to develop a wealth of production software used in-house to createits movies and keep improving in CG movie making. The acquisition brings to Disney thetalented creative teams behind the popular original Pixar blockbusters, who will now beinvolved in the promotion and future development of these properties, including potentialfeature animation sequels. This provides to Disney the access to valuable resources andtechnology such as the Pixar’s application programing interface called “Renderman”,which provides to Pixar higher capabilities to innovate and handle the most demandingproductions. This software property of Pixar is used by more than 100 films every year.Pixar employees are more engaged in their work than employees of the averageorganization. And because they are more engaged, Pixar employees put more effort in theirwork, are more trusting and more cooperative, all factors that affect productivity, qualityand innovation. Pixar continues to invest heavily in its software systems and believes thatfurther advancements will lead to additional productivity and quality improvements in themaking of its computer animated films.2.1.2 Brand ReputationPixar’s brand is one of the most reputable in the animation industry. The company hasbeen awarded many times during the last years. Pixar Animation Studios and its employeeshave received more than 100 awards and nominations for animated films, commercials andtechnical contributions. This reputation will enhance and reinforce even more Disney’sreputation, which has been decreased during the last years due to its over-diversificationand expensive investments generating a low turnover during the 2000’s.2.1.3 Pixar’s PartnersThe company has known how to develop and manage strong partnerships over time builton trust and respect of agreements. For the last 15 years, Disney and Pixar have shared oneof the most successful partnerships entertainment history. Disney first entered into afeature film agreement with Pixar in 1991, resulting in the release of Toy Story. In 1997,Disney extended its relationship with Pixar by entering into a co-production agreement,under which Pixar agreed to produce on an exclusive basis five original computer-animated feature films for distribution by Disney.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 102.1.4 Pixar’s patents and licensesThis part in one of the most strengthens of this company. This intellectual property of Pixarallows the production of animated images of a quality and richness, that are unique in theindustry, Disney will also have increased ability to fully exploit on Pixar-created charactersand franchises on high-growth digital platforms such as video games, broadband andwireless, as well as traditional media outlets, including theme parks, consumer productsand live stage plays. 2.2 Potential risks and benefitsAssuming that there always are risks associated with large acquisitions, here we analyzethe potential risks and benefits of Disney’s acquisition,2.2.1 Potential BenefitsFor Disney, this operation will mean many value Opportunities. The potential benefits ofthis acquisition are highlighted as follows.o Consolidate 100% of profit and current and future films affecting positively Disney feature animation.o Maximize sequel potential in the coming years.o Recapture distribution fees and eliminated duplicative company costs.o Leverage Pixars intellectual property across Disneys core businesses (e.g. theme parks, licensing, videogame publishing, etc.) Specifically, this means integrating Pixars characters and creations into Disneys theme parks and merchandizing.o Increase Disneys overall brand strength and base of powerful, high quality content which can: • Enhance opportunities offered by new digital distribution platforms • Increase Disneys ability to capitalize on new consumer preferences and emerging business models • Improve and accelerate international growth opportunities all around the world2.2.2 Risks• Post-acquisition performanceDuring the integration process it is possible that the new entity will dissipate value insteadof creating, it is mainly due to the fact that the priority for the time being remains theintegration itself rather than regular activities. Therefore, the performance of the companycan face some slow down during this process; nevertheless it has been state before thatboth companies have been operating during the last 15 years.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 11• Cultural incompatibilitiesPerhaps, this is one of the main potential risks for Disney which is a very big companywith big bureaucracy. At present, Disney has more than 150.000 employees all over theworld. Culture in both companies are totally different, Disney is based in a hierarchicalstructure with distant upper management whereas Pixar’s executives are the ones makingcreative decisions. The environment in Pixar is totally different to Disney. The bonusstructure is based on collectivism, if the film succeeds everyone gets a bonus- the Pixar’sculture has basic principles based on two concepts, Freedom to communicate with anyoneand stay always close to innovations. Despite of the fact both companies have beenworking closely for the last 20 years, we can affirm that there is a huge risk of cultureshock making much more difficult the integration process. Basically, Disney’s employeesare treated like soldiers whereas in Pixar they are treated as artists.• No synergy effectsThese firms were classified as being in different two-digit SIC codes. However, oursimilarity measure shows a rich array of relatedness prior to the merger as they both are ineach other’s 10 most similar firms and they also share many of the same closest 10 firms.Thus the Disney-Pixar acquisition is consistent with Disney choosing Pixar because it issimilar enough to permit asset complementarities and new product synergies. Followingthe acquisition, many Disney computer-animated movie A Bug’s Life, Cars) have beenproduced using Pixar technology and distributed by the merged company. We can affirmthat this risk is unlikely to happen, Disney achieve many different synergies, speciallytechnological and managerial, Steve Jobs, will become a Disney board member and also itsbiggest shareholder, he resulting inclusion of Steve Jobs on the Disney board may alsoprovide Disney with significant competitive advantages. This development, along withJobs now being the majority shareholder in Disney, has infused the company with one ofthe most creative and visionary leaders in the media and entertainment industry to date • Difficulties to add valueAnother potential risk to consider is the fact that the performance of this acquisition willnot bring added value to the company. This risk is far-fetched to happen due to thebusiness model of both companies. Pixar is based on offering added value in all of itsproductions.3. Acquisition Analysis3.1 Acquisition of Pixar 3.1.1 Financial NegotiationsAs part of the agreement, Disney will issue 2.3 shares for every share of Pixar stock. Therespectful amount of 1 billion in cash that Pixar had before the acquisition was a strongfact that Disney had to pay a premium price around 4% on Pixar share price. That would

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 12value the deal at $59.78 a Pixar share, based on Disneys $25.99 closing price on the lastday of the week. That was a 3.8 percent premium over Pixars closing price of $57.57. Itwas noticeable that Pixar share price had surged around 11% in the year on takeoverspeculation. Walt Disney has announced that it is buying Pixar, the animated studio led byApple head Steve Jobs, in a deal worth $7.4 billion. The acquisition of Pixar AnimationStudios by Walt Disney for $7.4 billion in a stock deal gave Pixars chief executive, StevenP. Jobs, a influential role as a nondependent director at Disney and he become the largestindividual shareholder of the company. 3.1.2 Integration ProcessJohn Lasseter, the director of "Toy Story" and the central creative force at Pixar, becomechief creative officer of the two studios and the principal creative adviser at Walt Disney.The acquisition of Pixar Animation Studios by Walt Disney for $7.4 billion in a stock dealgave Pixars chief executive, Steven P. Jobs, a influential role as a nondependent director atDisney and he become the principal individual shareholder of the company.Consequentially, the dynamic personality and an expert of consumer electronics by SteveJobs brought a significant knowledge to the organization. Disneys board could mean thatmore innovative digital deals could be in the works.3.2 Post Acquisition Results 3.2.1 Operational ConsequenceThe two companies will remain separate, with Pixar keeping its brand name andheadquarters in Emeryville, near San Francisco. Maintaining Pixar’s unique creativecharacter was a priority in the talks (MsnBC.Com,2006). At the time of acquisition therewere controversial expressions among Walt Disney. A statement by Barry Ritholtz, chiefinvestment officer with Ritholtz Capital Partners come to calm the various reactions. Hestated that "The question isnt did Disney pay too much but how expensive would it havebeen for Disney if Pixar fell into someone elses hands" (CnnMoney, 2006). 3.2.2 Synergy Effects“With the arrival of the Pixar leadership, Disney has adopted the director-drivendevelopment and production approach that Pixar has used so successfully. What is certainis that under Mr Iger, Disney has perfected the art of media synergy.Moreover, Roy Disney asset that animation has always been the heart and soul of the WaltDisney Company and it was brilliant idea to perceive Bob Iger and the firm hold thatheritage by bringing the outstanding animation talent of the Pixar team back to line. Disneyand Pixar could collaborate without the obstacles that come from two different companieswith two different sets of shareholders. After the acquisition both companies could focuson what is most important, which was to create innovative stores, characters and films thatpleasure millions of people globally. In addition, Pixar significantly enhanced Disneyanimation, which was a critical creative engine for driving growth across its variousstrategic business units. Pixar had six animated movies under production. They havegrossed more than $3.2 billion worldwide

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 13Michael Cuggino said ‘Its what Disney has known for but the movies they did in-house didnot do as well as the ones they did with Pixar’3.3 Actual Performance 3.3.1 Pixar’s releases (Since Acquisition) 3.3.2 Disney’s Position in the Computer Animated Film MarketNowadays, Disney is enjoying a remarkable and profitable run of hit TV programmers andfilms. Economist, 2008 point out that Disneys creative momentum is so strong now thatthere is no comparison between it and other big media companies (Economist.com, 2008)Disneys creative momentum is so strong now that theres no comparison between it andother big media companies. Disneys broadcast-TV network, ABC, is benefiting from anumber of hits, such as “Desperate Housewives”, “Lost” and “Ugly Betty”(Economist.com, 2008). Disney has also improved the fortunes of its film business, whichearned $1.2 billion in operating profit last year, up from $200m in 2005. Some of theincrease came from the firms acquisition of Pixar. After the acquisition, Disney laid outambitious plans for ten new animated films in the next four years. In addition, theacquisition of Pixar studio has sent a signal to people inside and outside Disney thatDisney will be in the growing market of animated movies.3.3.3 Future ExpectationsIn 2009, The Walt Disney Studios announced to debut the Disney Digital versions ofDisneyPixar’s animated facial appearance, Toy Story and Toy Story 2. The companyreleased the animated movie Toy Story 3 in June 2010. In June 2011 Cars 2 wasreleased by Walt Disney. The Bear And The Bow will be released in December 2011(Film Shaft, 2009). It is based on a fairy tale about a princess who wants to be anarcher. An impressive cast includes Reese Witherspoon and Emma Thompson.‘Newt’ will be released in June 2012 and is hugely anticipated.Another great animated movie that created after the acquisition of Pixar is ‘Up’. ‘Up’released on October 9th of 2010 it truly is a little masterpiece that had a highprofitability on Disney box offices.Case 2: Disney & Marvel4. Pre-Acquisition 4.1 Acquisition´s rationaleMarvel’s publishing business is strong. The company has managed to exploit its mostpopular characters through motion pictures, video games and consumer products.The enterprise was the top comics editor in 2008, edging out its closest rival, DC Comics,in both unit market share (46 percent to 32 percent) and retail dollar share (41 percent to 30percent). According to Griepp, founder of ICv2, the comic book industry had about $715

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 14million in sales last year. Therefore, Disney sees an opportunity to plug Marvel into itsvaunted global marketing and distribution system.With the acquisition of Marvel, Disney was aware of its vast possibilities regarding itsfurther international expansion and penetration of its different businesses. The followingexcerpts depict the rationale for the conducted acquisition. 4.1.1 Leveraging global marketing and distribution system 4.1.1.1 Integration of Marvel characters into Disney´s theme parksOne, of Disney´s most important businesses its theme parks. Families entering thisfantastic adventure consisting of entertainment, fun, restaurants, hotels and other keyrelated elements, are always happy to enjoy Disney´s main characters as the famousMickey Mouse for instance. With the acquisition of Marvel Entertainment, it is veryprobable to see Marvel characters such as Spider Man, the incredible. Romascreen (2010)quotes Disney´s CEO: “We’re just now considering all of our different options, so it would be premature to say when or where in the parks you would see Marvel characters — but I think it’s safe to say that you’re going to see some of those great Marvel characters walking around in the future.”This definitely will raise the attractiveness of the theme parks across the world like theones in California, Paris and Hong-Kong. Guests will be entertained with a wider characterrepertoire. Hence, it is justified to assume, that customer´s overall satisfaction will increaseand strengthen the commitment, which in the end will lead to an increase in turnover. 4.1.1.2 Consumer Products/ Merchandise LicensingDisney´s worldwide merchandise licensing operations include a diverse range of productcategories, the most significant of which are: toys, apparel, home décor and furnishings,stationery, accessories, health and beauty, food, footwear, and consumer electronics. TheCompany licenses characters from its film, television and other properties and earnsroyalties, which are usually based on a fixed percentage of the wholesale or retail-sellingprice of the products. Some of Disney´s major properties, which were licensed by theenterprise include Mickey Mouse, Disney Princess, Toy Story, Winnie the Pooh, Cars,Disney Fairies and Hannah Montana. Since the acquisition of Marvel Entertainment,Marvel properties including Spider-Man and Iron Man display a further important sourceof income. Starting with toys, apparel and other items based on last summer’s hit Iron Man2, Disney also released Marvel epic, Thor which soon will be followed by the notoriousCaptain America: The First Avenger.Additionally, Marvels broad library of characters has been integrated into a wide-rangingglobal publishing program, which will feature books in an extensive collection of formats.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 15 4.1.1.3 Studio EntertainmentThe acquisition of Marvel, makes Disney a partner with Paramount Pictures, Sony PicturesEntertainment and 20th Century Fox, all of which have long-term deals to make ordistribute movies based on superhero characters. Sony holds the film rights to Spider-Man,while Fox has the X-Men and Fantastic Four in perpetuity (nytimes, 2010).Paramount, a unit of Viacom, has an agreement to distribute five Marvel films, includingtwo “Iron Man” sequels, over the next few years. Disney said it would honor the contract,but the goal is clearly to bring Marvel’s movies in-house.According to Disney´s annual report (2010), the Company has an agreement with a third-party studio to distribute the Marvel films Iron Man and Iron Man 2, Thor and CaptainAmerica, which were released already except Captain America. Furthermore they have aseparate agreement with another third-party studio to distribute the Marvel film TheIncredible Hulk, which has also been released. Under these arrangements, the Companyincurs the cost to produce the films and pays a fee to the third party studio to distribute thefilm. The firm recently purchased the distribution rights for The Avengers and Iron Man 3from a third party studio and will pay certain fees to that studio associated with theperformance of those films, subject to a minimum guarantee. 4.2 Potential Benefits / RisksThis part deals with the potential benefits and risks arising through the acquisition ofMARVEL Entertainment. First, potential benefits are displayed. Subsequently potentialrisks are presented in order to provide the reader with an overall idea about the potentialeffects caused by Disney´s internationalization process.With the acquisition of Marvel Entertainment, Disney strengthened its creative and brand.Marvel has world-class artists, a fantastic stable of well-known characters like Iron Man,the Hulk, Thor and Captain America, and loyal fans who express their passion every day inmuch the same way fans of Disney do. With the beginning of 2011, Marvel epics, Thorand Captain America: The First Avenger, coming to theaters in 3D this summer andMarvel TV shows, games, comics and merchandise now flowing through Disney´s globalmarketing and distribution network (Disney annual report 2010).According to Disney´s expectations stated in its annual report 2010, the acquisition willinitially result in lower earnings per share than they would have earned in the absence ofthe merger. The enterprise furthermore expects that over time the merger will yieldbenefits to the combined company such that the merger will ultimately be accretive toearnings per share. However, there can be no guarantee that the increase in earnings pershare expected in the long term will be achieved. In order to reach increases in earnings pershare as a result of the merger, the combined company will, among other things, need toeffectively continue the successful operations of Marvel after the merger, developsuccessful new content (including future feature films and television series or sequels to

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 16Marvel productions) based on Marvel characters and successfully integrate Marvelproducts into the combined company’s various distribution channels.As Disney’s film division becomes suddenly crowded, justified by the acquisition, thecompany may find its new partnerships bumping into one another. The nytimes states, thata few months ago, Disney’s new DreamWorks partners found themselves assuringexecutives that they would avoid any conflict with the “Pirates of the Caribbean” franchiseas they sought to develop a film based on Michael Crichton´s novel “Pirate Latitudes.”However, according to Disney´s annual report 2010, the company acquisition showsalready the its first repercussions. Disney´s managed to increase in selling, general,administrative and other driven by the acquisitions of Marvel. Segment operating incomeincreased 11%, or $68 million, to $677 million due to improved results at our retailbusiness and an increase in our publishing business driven by Marvel titles. Furthermore,Disney states that the increase in television distribution and other revenue was primarilydue to the inclusion of Marvel.5.1 Acquisition of MARVEL 5.1.1 Financial NegotiationsIn recent years, Disney put lots of strengths in its acquisition actions. Due to the firm´ssuccessful actions and good business operation, Disney experienced an astonishingincrease in its financial income. Therefore Disney was able to offer an additional financialsupport for its businesses, which boosted the scale even more.August of 2009, Disney announced to acquire Marvel Entertainment based on thefollowing data: • According to the agreement and Disney’s stock closing price, Marvel Entertainment’s shareholders would obtain 30 USD in cash for each share. • Total price of this acquisition would come to 4.24 billion USD based on Marvel’s stock price, per share 54.03 USD. • Marvel’s share holders would receive Disney’s share of 0.7452On December 31, 2009, the Company completed a cash and stock acquisition for theoutstanding capital stock of Marvel Entertainment, Inc. (Marvel), a character-basedentertainment company. This acquisition is consistent with the Company’s strategic valuecreation through utilization of intellectual properties across Disney’s multiple platformsand territories.The acquisition purchase price totaled $4.2 billion. In accordance with the terms of theacquisition, Marvel shareholders received $30 per share in cash and 0.7452 Disney sharesfor each Marvel share they owned. In total, the Company paid $2.4 billion in cash anddistributed shares valued at $1.9 billion (approximately 59 million shares of Disney

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 17common stock at a price of $32.25).The Company is required to allocate the purchase price to tangible and identifiableintangible assets acquired and liabilities assumed based on their fair values. The excess ofthe purchase price over those fair values is recorded as goodwill.Figure 1: Marvel acquisition figuresSource: Walt Disney Annual Report 2010Intangible assets primarily consist of character-based intellectual property with anestimated useful life of approximately 40 years.The goodwill reflects the value to Disney from leveraging Marvel intellectual propertyacross our distribution channels, taking advantage of Disney’s established global reach.The goodwill recorded as part of this acquisition is not amortizable for tax purposes.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 18 5.1.2 Integration Process"Disney is the perfect home for Marvels fantastic library of characters given its provenability to expand content creation and licensing businesses," said Ike Perlmutter, MarvelsChief Executive Officer. Based of the decision to acquire Marvel, further benefits wouldbe gained by leveraging the characters of the famous Iron Man, Spider-Man, Xmen,Captain America, Fantastic Four, Thor and more than 5,000 other Marvel Characters.Marvel’s former CEO Ike Perlmutter will continue to be in charge of Marvel’s businessand directly report to Disney’s CEO Robert Iger.All members of Boards between Disney and Marvel Entertainment approved and agreed onthis acquisition, which is followed and based on clearance under the Hart-Scott-RodinoAntitrust Improvements Act. This acquisition is subjected to United States Merger ControlRegulations.5.2 Post Acquisition Results 5.2.1 Operational ConsequencesDisney will file a Registration Statement on Form S-4 that includes a proxy statement ofMarvel and which also constitutes a prospectus of Disney. Marvel will mail the proxystatement/prospectus to its stockholders. "Ike Perlmutter and his team have done animpressive job of nurturing these properties and have created significant value. We arepleased to bring this talent and these great assets to Disney. We believe that addingMarvel to Disney’s portfolio of brands provides significant opportunities for long-termgrowth and value creation.” said Disney’s CEO.Marvel´s CEO Perlmutter furthermore stated, that Disney is the perfect home for Marvel’sfantastic library of characters given its proven ability to expand content creation andlicensing businesses. Additionally, he stated that the acquisition is an unparalleledopportunity for Marvel to build upon its vibrant brand and character properties byaccessing Disney’s tremendous global organization and infrastructure around the world.Disney says that Marvel’s current deals will stay in place. But movies based on othercharacters can be put into the pipeline, and Disney’s global reach in film distribution willthen be used to handle those releases in-house. Disney owns 229 stores in USA and 105stores in Europe. Marvel’s products will begin to show up in Disney’s stores.Another important factor is Marvel has many licensing partners in the market, before thisacquisition, Marvel’s partners were Disney’s direct and indirect competitors. After whollyacquired Marvel, Disney’s competitors became its partners. 5.2.2 Synergy EffectsDisney Enterprise is a Multinational Diversified Entertainment and Media Enterprise. Itpossesses 5 main business sections: Theme Parks, Studio Entertainment, Interactive Media,Media Networks and Consumer Products. With its continuous development, Disney

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 19expanded fast and at present it owns PIXAR Animation Studio, Touchstone Pictures,Miramax, Buena Vista Home Entertainment, Hollywood Pictures, ESPN, ABC and otherhighly influencing entertainment firms.Marvel Entertainment, Inc. is one of the worlds most prominent character-basedentertainment companies, built on a library of over 5,000 characters featured in a variety ofmedia over seventy years. Marvel utilizes its character franchises in licensing,entertainment (via Marvel Studios and Marvel Animation) and publishing (via MarvelComics).From the above mentioned companies business scales, Disney and Marvel will benefitfrom synergies. Hence, the businesses will experience a mutual share of benefits and highpotential increased abilities.From a Market point of view, Disney has a set of mature marketing operating system andmore marketing running experience, especially in the international market. Disney andMarvel, both companies have similar target markets and market compatibility. Disneywould offer more marketing experience, and both would share the market resourcesmutually.From Financial point of view, thanks to Disney’s better profitability structure, Disneycould offer more financial funds to support Marvel’s development after the acquisition.Through this acquisition, Marvel’s shareholders would receive a big amount of cash inreturn. This was in accordance with Marvel’s shareholder’s benefits. For Disney, Marvel’sbusiness structure has an enormous potential to improve in the future even more.From Inner Management point of view, Disney is a company marked having years ofexperience in entertainment and management. Due to Disney´s experience and profoundknowledge of the markets and complex functioning of the different diversified businesses,the company would be more able to run Marvel’s business and guide it towards aprofitable company through inner integration.5.3 Actual Performance 5.3.1 Marvel’s Current SituationMarvel is subsidiary wholly owned by Disney now. After the acquisition, Marvel launchedout TV division, Marvel Television, appointed Heroes and Smallville to run it. September2010, Smith Tinker the seattle based connected game company has entered in a licensingagreement with Marvel Entertainment and will draw upon their vast universe of superHeros including Iron Man, Spider-man, Hulk, X-men, Wolverine , Thor and CaptainAmerica. According to Marvel’s strategic plan, in this year Marvel will launch out Thor(Completed), to attract audience’s eyes. Marvel has done an amazing job connectinggeneration of fans to an enormous universe of characters through comic movies, televisionand merchandise.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 205.3.3 Future ExpectationsBecause of successfully conducted acquisition, combined with its excellent operations,Disney was able to earn 8% distribution fee on Iron Man. Another important expectedincome of 115 million USD will derive from two movies. The first part will be generatedfor the release of Avengers. This movie will probable be released on May 4th, 2012. Thesecond movie, namely Iron Man III, will be released on May 3th, 2013. If those moviesperform stronger than currently expected, Paramount will generate more than 115 millionUSD. Both the companies will have more parts of businesses to be integrated in the nearfuture. Surely, Disney will dedicate more power and investments to promote Marvel´ssuccess.

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Gestion de procesos de fusiones y adquisiciones: “Disney’s acquisitions : Pixar & Marvel” 21 6. ConclusionsThe analysis of Disney’s acquisition of Pixar and Marvel demonstrates a strong and uniquecorporate strategy turned to the reinforcement and the development of Disney’sEntertainment Empire.The company that is dealing with an entire portfolio of strong entertainment entities, whichare targeting different markets and customer profiles. The diversity of the offer assures thefirm’s position within the global entertainment industry and and its development over theyears to come.Disney’s acquisition of Marvel and Pixar are quite similar in a way that there are bothresponding to market demand and trends, two elements that Disney has been failing takinginto consideration into its latest creations. Pixar is reflecting the new technologicalcomputer animated films, which tends to replace the old-fashioned animated work art andMarvel is the symbolism of timeless super heroes. Both of these companies’ resourceswere critical to Disney in order to access to their technologies and brand portfolio,although the company was mainly investing on the long run trying desperately toreintroduce talent and creativity within the company.Indeed, the production of films and famous characters are at the core of their businessstrategy, this creativity is not only a matter of maintaining the brand reputation, it isprimarily about generating profit off these production and promoting them through theirentire divisions (stores, themes parks, TVs, merchandising, resorts etc…). With Marveland Pixar, Disney is making a strategic move collecting at the same time some precious“cash cow productions” but at the same time it is investing heavily on technologies andR&D for further films.Nevertheless, the integration of these companies have been limited considering that thereare both operating apart from Disney’s original structure conserving therefore, a certainindependence in its internal management and creative orientations. These limits are part ofa strategic choice for Disney, which is organised as a multi-divisional structure althoughthis type of organisation is largely reducing the synergies effects that could be achievedunder a regular restructuration and it certainly does not motivate the cohesion around aunique corporate culture as Disney was in the past, known for.To conclude, it is doubtless that these two acquisitions are part of a natural development ofthe company and are perfectly coherent with the actual strategic objectives of Disney,although it seems that the company is more dedicated to the management of its divisionportfolio than the actual performances and synergies that could be achieved among them.The continuous fragmentation of the company is playing against itself, unable to create orinnovate as it used to, it is now constrained to absorb in order to grow.